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Sancho Panza

Taxpayers Lost £230M In Lloyds Share Sale

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Indie 18/12/13

'Taxpayers took a loss of at least £230 million from the return of a 6 per cent chunk of Lloyds Banking Group to the private sector, according to a National Audit Office (NAO) report.

The figure, which takes into account the cost of borrowing money to fund the £20 billion bank bail-out in 2009, appears to undermine a claim at the time by Chancellor George Osborne that the share sale in September represented "a profit for taxpayers".

It would suggest that the overall loss on the £20 billion bailout for the bank could be nearly £1.5 billion if the rest of the taxpayer stake is sold off at a similar price - though the NAO report itself did not make such a calculation.

Mr Osborne trumpeted in the autumn that the £6.2 billion Lloyds share sale had resulted in the national debt being reduced by more than half a billion pounds, a claim that was later backed in data from the Office for National Statistics.

This £586 million figure represented the difference between the value for accounting purposes of the shares on the Treasury's books - at 61p - and the 75p sale price.

The Treasury acknowledged at the time of the sell-off that the cash profit was far less, at £61 million.

Today's report by the spending watchdog does not dispute these calculations but does take into account the effective interest paid by the Government to make the original investments in the bail-out.

It also recommends that the Treasury should consider these financing costs when analysing the value to the taxpayer of any future sale.

The report finds that the average rate paid for the shares by the Government of 73.6p was effectively reduced to 72.2p by the fact that it had been paid back some of the money by Lloyds in fees - producing a cash profit of just under £120 million.

But it says that if the cost of financing is taken into account, the sale resulted in a shortfall of £230 million.

The shares were subscribed 2.8 times over but pricing them higher would have required allocating more than 60% to shorter-term investors, risking the future performance of the stock, the report finds.

Following the sale, the share price held steady "lending support to UKFI's decisions on timing and pricing of shares", it adds.

It endorses the use of in-house experts at UKFI rather than buying in consultants for shorter term contracts.

The report also notes that the investment banks who arranged the sale were not paid a fee by the Treasury, amid "strong competition to win such a high-profile mandate", saving around £4.8 million.

They did receive £4.7 million in selling commission, a quarter of which went to UKFI. Legal advice fees were under £100,000.

The report also reveals that the UKFI had held informal talks with large financial investors in 2012 and 2013 over the possibility of selling a significant chunk of Lloyds to such a group.

But such a deal would have been hard to justify, the NAO said, unless the shares could be sold at or above market price.

Amyas Morse, head of the National Audit Office, said today: "The programme of sales of the taxpayers' holdings of bank shares has got off to a good start.

"Sale options were reviewed thoroughly and UKFI looks to have got its timing right.

"The sale took place when the shares were trading close to a 12-month high and at the upper end of estimates for the fair value of the business. Furthermore, the share price in trading after the sale has remained steady."'

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I am not sure which scenario seems most likely to be correct to me

1. That the government might have ignored the cost of borrowing the money needed to fund the deal (i.e. is stupid)

2. That the government massaged the figures to make a pig's ear look like a silk purse (i.e. what governments do)

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